Almost a month after the announcement, Penske Automotive Group, Inc. (PAG - Analyst Report) completed the acquisition of Western Star Trucks Australia Pty Ltd. from Australia-based Transpacific Industries Group Limited last week. Western Star distributes commercial vehicles, their spare parts and aftermarket support in Australia, New Zealand and some parts of Southeast Asia.
Penske paid $200 million of purchase consideration from cash flow from operations and borrowings under its credit and floorplan financing facilities. The consideration includes $67 million for target working capital required for vehicle inventory, parts and other assets. However, the amount is subject to a closing adjustment, which is expected to be finalized within this month.
Penske revealed that its third-quarter 2013 results will likely include acquisition related costs of 2 cents a share. However, excluding this cost, the company projects an annualized proforma income of 10-14 cents per share from the acquisition.
Western Star is among the top three names in heavy duty trucks in Australia. It has affiliation with Daimler Trucks North America of Daimler AG (DDAIF). The company has a big and established dealer network in Australia and New Zealand and offers growth opportunities to Penske.
While Penske will take over Western Star, the latter will be managed by its existing management team. Though the acquisition is expected to add to the company’s revenues and earnings, rising competition is likely to put pressure on the margins.
Penske faces tough competition from other franchised automotive dealerships, private market buyers and sellers of used vehicles, Internet-based vehicle brokers, national and local service and repair shops and parts retailers and automotive manufacturers. Rising competition together with increasing price transparency will lead to lower selling prices and act as headwinds for the company.
Penske currently carries a Zacks Rank #1 (Strong Buy). Other companies worth considering in the same industry are Asbury Automotive Group, Inc. (ABG - Snapshot Report) and Lithia Motors Inc. (LAD - Analyst Report). Both these companies carry a Zacks Rank #1 (Strong Buy).